MTS financing finally growing

ISLAMABAD: The Finance Minister's acceptance of SECP tax reform proposal has generated a small rally of 5% in local bourse in last few trading sessions. And in line with regional markets, the Karachi bourse has so far rallied 11.1% (10.0% in USD) in this calendar year, says a press release issued here on Thursday.

The most interesting thing of the current run up in share prices is that it is accompanied by decent volumes. Compared to last quarter average daily volumes of 59.7mn shares (Rs2.8bn or US$32.2mn), the average daily volumes at Karachi market in this quarter up till now is 119.0mn shares (Rs3.7bn or US $41.0mn). Though volumes have improved it is far lower than average daily of approx 300mn (Rs24.8bn or US$417.5mn) seen in 2003-07.

As a consequence of rising share prices with better volumes, the leveraged positions in MTS and futures have also increased. Though these are not at alarming levels so far and far lower than what it used to be in the past, it may make the share price of actively traded stocks slightly more volatile in the short run.

MTS financing close to Rs900mn Thanks to booming market and recent margin relaxation and allowing individuals to lend in MTS by the regulators, the open interest in the MTS (Margin Trading System) has reached Rs877mn as of February 22, 2012. This level of approx. Rs900mn is seen for the first time since the new leveraged product was introduced by the regulators in March 2011. The MTS rate, however, is not increasing and the average gross rate settled at 16.7% yesterday.

This gives comfort that market is not over leveraged and there is enough supply of funds in the MTS market. At a time when the Karachi bourse was considered to be one of the most actively traded market in Asia, the badla financing (sometime called CFS and COT) averaged Rs33bn with average rate of 15% between 2005-07.

Open interest in Feb contracts reached Rs1.4bn Single stock futures market is also showing some signs of improvement thanks to margin rationalization last year coupled with recent upsurge in share prices. Compared to high of Rs2.3bn at the end of January 2012, the maturing February contract open interest has reached Rs1.4bn yesterday.

Copyright PPI (Pakistan Press International), 2012